By Chris Furnari
Despite a U.S. beer landscape that now boasts the most breweries since Prohibition, the battle for domestic supremacy continues to be between Anheuser-Busch InBev and MillerCoors.
But at a time when the industry share of “big beer,” while nevertheless powerful, is declining because of consumers’ flight to craft beer and other forms of beverage alcohol, it is hard to figure out, at times, just what the two are fighting for.
The key in the past used to be brand loyalty – and while much of the advertising these days seems to be aimed in that direction, it doesn’t seem to be intended to grow the pie; rather it’s geared toward keeping it away from the other guy.
According to beer industry expert Bump Williams, no matter how many blows the two corporate giants throw at one another, they are both struggling to earn brand loyalty from the consumer.
“I don’t know what the price-value relationship is for Miller Lite, Coors Light or Bud Light,” Williams said. “Brand equity has gone away and retailers are commoditizing the domestic premium category.”
Williams blames traditional marketing for the erosion of brand affiliation.
“Advertising became almost insulting and abrasive,” he said. “They lost their identity along the way and now they need to rebuild the story behind some of these brands.”
What is interesting is that there are brands growing in the domestic lager category even as Miller and Bud have eroded. Williams pointed to companies like Pabst and Yuengling as examples of excellent brand builders in the domestic lager category. Last year, those two companies’ core brands were up 17 percent and 29 percent, according to Symphony IRI. Both have also grown without major traditional marketing initiatives, but have developed intense followings.
“PBR is a very unique brand,” Williams said. “They have real strong pockets of very loyal consumers across the U.S. because it’s authentic, it hasn’t changed, and it’s affordable and dependable.”
Of the two mega-companies, MillerCoors seems most focused on building its base of beer drinkers, according to Williams.
“I think that MillerCoors is better positioned for future growth,” he said. “Their sole focus is building the beer business.”
Williams said that to support that focus on building the business, MillerCoors’ next national sales meeting will increase its investment in marketing Miller Lite, as well as other new marketing efforts.
Meanwhile, Anheuser-Busch InBev is apparently looking to brand extensions to keep consumers from going farther afield, as it spent Super Bowl ad money to introduce the country to Bud Light Platinum, a 6 percent ABV “light” beer introduced in late January.
As it has in the past with its Bud Light Lime, Budweiser Select, and Michelob Ultra lines, AB-InBev received a sales bump from its introduction, pulling in a 1.7 share in its first week (more than the better-established Blue Moon brand), according to industry publication Beer Business Daily. Nevertheless, as those other extensions have shown, one week does not necessarily make for a long-term brand.
And while churning through line extensions might stave off immediate dollar losses, it doesn’t stop long term brand erosion. The ramifications of AB-InBev’s strategy became apparent earlier this year with a big change at the top of the rankings: as has been widely reported, Coors Light passed Budweiser as the number two beer brand in the country in 2011, breaking up the long hold AB-InBev has had on the top two spots.
“Coors Light has stayed true to its message,” said Williams.
(Recent Symphony IRI data still puts Coos Light at the no. 3 position, behind both Bud Light and Budweiser, but those numbers reflect neither the seven straight years of growth for Coors Light nor business done in two key channels: on-premise and Walmart.)
So what is the goal in St. Louis, and in North America overall, which accounts for almost half of AB-InBev’s overall sales? Don’t ask Bud’s old guard for the answer. Dave Peacock, the last remaining key executive left over from the acquisition of Bud by InBev in 2008, resigned from his post as President of North American Operations in January.
As Brazil native Luiz Edmond moves in to guide the company’s U.S. operations, it is hard to discern his true motivation: is he interested in answering the call to take that number two spot back from Coors Light, or is he planning on continuing the search for profit at the expense of share and volume?
After all, last year, AB-InBev’s market share dropped to 47 percent, down from 47.7 the year before, and the brewer also produced less than 100 million barrels of beer for the first time in over ten years. But despite the drop in shipments, revenues grew 4.2 percent through the first nine months of 2011.
That’s not just an AB-InBev trend, however, but an industry trend: the entire category has been hemorrhaging beer since 2008 – to the tune of over 8 million barrels. But at the same time, big beer has been reaping bigger revenues and profits through cost cutting, case price increases and craft offerings. The Beer Institute, an industry lobbying organization, said beer sales rose 2 percent in 2011 to more than $98 billion. In terms of cash revenue, off-premise sales grew a full percent, while on-premise grew an impressive 3 percent.
Crafting New Ideas
Which brings us back to craft, and its role in the overall picture of domestic beer.
In an effort to recover revenues from some of those lost barrels, MillerCoors is dedicating increased time and money to its craft division,
Tenth and Blake. The company has invested in Athens, Ga.-based Terrapin Beer Co. and recently acquired Crispin Cider. Miller has also publicly stated being “open to developing new relationships and new partnerships.” Meanwhile, it has continued to reap the benefits of having a craft-style offering in Blue Moon.
AB-InBev? The company acquired craft brewer Goose Island last summer – the Goose will be introducing its popular 312 Urban Wheat Ale in cans this month – and has tried to move upscale with offerings like Shock Top.Even if the companies decide to go full-bore into craft offerings, however, it isn’t clear how much it will alter the dynamics of their ongoing competition. But when it comes to developing a craft portfolio, Williams likes MillerCoors’ positioning with Tenth and Blake.
But, he said of AB-InBev, “size has its advantages.”
“AB-InBev is a great collector of companies,” he said. “I think they are brilliant bankers and awesome money makers, I am just not sure if they still have the reputation in the industry that a Tom Cardella and others at MillerCoors enjoy.”
What also remains to be seen, however, is how long the industry, as both beer giants have known it to be, can ultimately last.